STAND. COM. REP. NO. 1073-00

                                 Honolulu, Hawaii
                                                   , 2000

                                 RE: S.B. No. 2486
                                     S.D. 2
                                     H.D. 1




Honorable Calvin K.Y. Say
Speaker, House of Representatives
Twentieth State Legislature
Regular Session of 2000
State of Hawaii

Sir:

     Your Committees on Consumer Protection and Commerce and
Judiciary and Hawaiian Affairs, to which was referred S.B. No.
2486, S.D. 2, entitled: 

     "A BILL FOR AN ACT RELATING TO TAXATION,"

beg leave to report as follows:

     The purpose of this bill is to establish a system for
imposing the tax on cigarettes through the use of stamps sold by
the Department of Taxation (DOTAX) to wholesalers and dealers of
cigarettes, who are to affix the stamps to cigarette packages
prior to distribution.  Among other things, the bill provides
that:

     (1)  Wholesalers and dealers must obtain a "stamping
          license" to purchase stamps;

     (2)  Stamps are to be sold at their denominated values plus
          a state stamp fee of 1.7 percent to cover costs of
          providing the stamp and enforcing the law;

     (3)  Wholesalers and dealers may make deferred-payment
          purchases of stamps;

     (4)  Wholesalers and dealers must keep monthly reports of
          distributions of cigarettes and tobacco products, and
          purchases of stamps;


 
 
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     (5)  Tax refunds will be provided for cigarettes and tobacco
          products shipped outside the state for subsequent sale
          or use; and

     (6)  The Attorney General (AG) is to enforce the criminal
          and civil penalties and forfeitures provided by the
          bill, and may engage the county Prosecuting Attorney's
          assistance.

     The bill also appropriates funds for start-up and
enforcement costs, requires DOTAX to submit a report to the
Legislature prior to the 2006 Legislature, and sunsets on June
30, 2006.

     The Department of Health (DOH) testified in support of this
measure.  DOH stated that the measure would complement Hawaii's
comprehensive tobacco prevention and control efforts by providing
greater assurance that cigarettes are taxed, helping to keep
product price at market levels, and making cigarettes less
affordable to the price-sensitive youth market.  DOH noted that
the percentage of minors smoking (29.2 percent), currently
exceeds that of adults (19.4 percent), and that 80 percent of all
smokers began their habit before 18 years-of-age.

     Your Committees have amended this measure as recommended by
the AG, which amendments generally strengthen the enforcement
provisions of this bill.  As amended, this bill differs from S.B.
No. 2486, S.D. 1, in that it:

     (1)  Removes the "stamping license" requirement;

     (2)  Makes clear that the AG has authority to review tobacco
          tax returns and reports filed under chapter 245, Hawaii
          Revised Statutes;

     (3)  Provides that both DOTAX and the AG must consent to the
          destruction of tax records within a five-year period,
          and may require that records be kept for a longer
          period;

     (4)  Amends criminal and forfeiture laws to provide for
          criminal penalties in addition to fines for those who
          break cigarette packages and sell cigarettes loosely,
          and to allow forfeiture;

     (5)  Clarifies that the AG receives 100 percent of any fines
          of an investigation and prosecution conducted by the
          AG; and


 
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     (6)  Allows for more comprehensive regulatory control over
          tobacco products in the State by adding a new part
          providing for regulation of the sale, possession, and
          handling of export and foreign cigarettes.

     Your Committees have also made nonsubstantive, technical
amendments for purposes of clarity, consistency, and style.

     As affirmed by the records of votes of the members of your
Committees on Consumer Protection and Commerce and Judiciary and
Hawaiian Affairs that are attached to this report, your
Committees are in accord with the intent and purpose of S.B. No.
2486, S.D. 2, as amended herein, and recommend that it pass
Second Reading in the form attached hereto as S.B. No. 2486, S.D.
2, H.D. 1, and be referred to the Committee on Finance.

                                   Respectfully submitted on
                                   behalf of the members of the
                                   Committees on Consumer
                                   Protection and Commerce and
                                   Judiciary and Hawaiian
                                   Affairs,

                                   
                                   
                                   
                                   
______________________________     ______________________________
ERIC G. HAMAKAWA, Chair            RON MENOR, Chair